Pension reform and labor supply

Abstract:
We exploit a comprehensive restructuring of the early retirement system in Norway in 2011 to examine labor supply responses to increases in work incentives and actuarially neutral reductions in the age of first access to pension benefits. We find that increasing the returns to work is a powerful policy: The removal of an earnings test, implying a doubling of the average net take-home wage, led to an increase in average labor supply by 7h per week (30%) at age 63 and by 8h (46%) at age 64. The responses primarily came at the extensive margin. In contrast, reducing the access age has almost no effect on labor supply, in our setting with actuarially fair work incentives.